More than a cycle: How semiconductor companies can navigate extraordinary demand and supply scenarios

Just as you may wish to deepen relationships with customers, consider the same with key suppliers. One option is direct involvement. Prepayments, long-term agreements, loans, equipment purchases and joint ventures are options that many semiconductor companies are already taking. But be sure to consider the financial impact. Under certain conditions, for example, paying for a supplier’s equipment may be considered a lease, even without a lease agreement. If you loan a supplier money to buy equipment, different ways of structuring the loan will have different financial impacts.

As is the case with customers, more informal collaboration may be attractive as well. Mutual data sharing can help reduce both your risk of lacking key supplies — and your suppliers’ risks of producing more than the market can use. Within such collaborative relationships, your vendors may also help you fill other supply needs. If, for example, you’re having trouble sourcing components, a contract manufacturer with whom you have a deeper relationship may be able to tap its own suppliers to help you fill the gap.

Detailed, prompt insights into conditions at your facilities and those of key suppliers can help you improve your production and supply chain. Control tower technology can help deliver those insights, potentially offering a dashboard for a unified view of your supply chain, with visibility into current and incipient problems. Some control tower tech can do more than alert you to issues. It can also contain algorithms to resolve or propose solutions to certain problems autonomously.

Consider, too, artificial intelligence (AI) systems to support digital twins and other models that help forecast marketplace demand, maintenance needs and supplies, including potential disruptions and price changes. AI can present you with a range of scenarios, along with their probabilities and second-order impacts, to enhance operational planning. Other AI systems (often drawing on the same data) can support “intelligent price engines” to help improve your prices too.

Tech-enabled insights and forecasts can help predict supply chain disruptions. But you may need other, concrete preparations to avoid these disruptions and mitigate their impact. That may be true not just for integrated device manufacturers (IDMs), but also for fabless semiconductor companies. You won’t be able to meet your customers’ demand if your chosen foundries and back-end processors can’t meet yours.

If you do own capital equipment, consider tech-enabled capital planning to help craft an integrated strategy for buying, upgrading and retiring equipment throughout your global operations. Companies may wish to identify supply chain components that depend on a single source. Consider looking for backup sources or alternate components if only a single source is available. You may also want to enhance the velocity and predictability of your R&D. If your suppliers can rely on your forecasts for when you’ll need components, they can better plan to deliver them. Leading practices here include cross-functional teams to allocate budget, technology resources and people, as well as a structured development process with clearly defined reviews, milestones and accountability.

Given the severity of today’s talent shortage, it may be time to do more than recruiting at the usual universities and writing ever bigger checks. To improve retention, it may help to review performance management. Have you updated salary and incentives for today’s labor market and your current objectives? Consider your employee value proposition (EVP). Does it include options for flexible and remote work, attractive upskilling opportunities and a differentiated corporate purpose? Many employees tell us they want more than a web page with a few generic lines on “authenticity” and “mission.” They want to work for companies with values that set them apart.

It may be useful to work with educational institutions beyond the traditional ones. Community colleges and other universities, perhaps located near your own facilities, likely have talented, diverse students. But these institutions and students may need you to make long-term investments in them, so graduates will have the right skills and be eager to work for your company.

R&D tax credits and other incentives — state, federal and global — may be able to help pay for technology upgrades, but this opportunity is often underutilized. Only 38% of CFOs, for example, say that they’re very confident that they’re taking full advantage of R&D tax credits for cloud investments. Many semiconductor companies, with operations that cross borders and major R&D budgets, may be among those leaving money on the table by not taking full advantage of tax opportunities.

As you consider expanding production, investing in new designs, upgrading your tech for better supply chain insights, improving market forecasts and pricing, or investing in suppliers, give your tax team a seat at the table early on. They may be able to offer significant value — in some cases, enough to make projects financially feasible when they otherwise wouldn’t be. The R&D credit against federal and state income taxes, for example, can lead to a dollar-for-dollar reduction against cash tax outlays.